Charlottesville study: tax abatements could help but won’t instantly reverse constrained housing market
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Summary
A 3TP Ventures feasibility model presented to Charlottesville City Council shows a constrained rental market; standard abatements targeted only at affordable units rarely fully offset inclusionary zoning costs, while a rent-gap rebate merits further consideration though it has administrative unknowns.
A consultant told Charlottesville City Council on Feb. 17 that a tax-abatement program could help narrow the financing gap for new rental housing but is unlikely, on its own, to trigger broad immediate development.
Jeremy Goldstein of 3TP Ventures presented a pro-forma feasibility tool and a final report that evaluate market feasibility across building types and submarket tiers. "There's really limited development feasibility across project types," Goldstein said, summarizing the team's findings that the city's rental market is currently constrained and that inclusionary zoning makes projects harder to 'pencil.'
The presentation tested two abatement styles. Goldstein said a traditional, value-based abatement — which reduces taxes tied to the value of new improvements — offers modest gains when applied only to required affordable units. Using a mid-rise example, he showed that a 10% inclusionary requirement could cost an owner about $13,636 a month in foregone revenue and that abatements limited to affordable units generally do not return that full amount. "With the traditional tax abatement on affordable units, the abatement itself never approaches the amount of money that's lost by making these units affordable," he said.
By contrast, Goldstein described a rent-gap abatement that reimburses the difference between market rent and the affordable rent for each unit. In the model, higher rent-gap reimbursements can return much of the owner loss and move feasibility metrics (yield on cost and IRR) more substantially, but Goldstein cautioned that the rent-gap approach is rarely used and carries administrative unknowns. He cited Baltimore as an early example that remains relatively new.
Kelly Brown, director of Neighborhood Development Services, told council the tool and the report are intended to inform policy choices and to be used as an ongoing, transparent monitoring mechanism. She confirmed the tool is available on the city's housing-program web page.
Councilors pressed the consultant on assumptions, sensitivity to the inclusionary share (the city's current inclusionary threshold tied to projects of 10 units or more was modeled at 10% in the examples), the discount/IRR thresholds used in the analysis (Goldstein said yields around 6.75%–7% and IRR bands near 12%–18% were relevant), and the legal and administrative constraints. A councilor noted that Virginia law requires private developers to pay taxes first and be reimbursed (a performance-grant approach); Goldstein said that practice is common in the state and creates administrative complexity but need not be a legal block to an abatement program.
Goldstein emphasized limits of the analysis: it focuses on rental projects, uses typical project assumptions rather than project-specific underwriting, and excludes nonfinancial impacts and administrative cost estimates. He recommended considering rent-gap designs further, alongside other incentives (gap financing, land provision, streamlined approvals) and recognized the risk that any abatement could subsidize projects that would have been built anyway.
Next steps, Kelly Brown said, are for staff to incorporate council questions into policy options and return with recommendations at a future meeting.
The study was contracted by the city in June 2025. The consultant said inputs included local staff data, market rent research, proprietary construction-cost services and stakeholder feedback. The model allows the city to test variations in building type, submarket tier, affordability mix, abatement percent and duration.
